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Trade Secrets Basics

Patrick M. Torre & Donovan Gibbs

This article was developed by the Kentucky Bar Association (KBA) Intellectual Property (IP) Section. To learn more about the KBA IP Section, visit https://www.kybar.org/page/intellectualproperty.


Patents, trademarks, and copyrights most immediately leap to mind when the topic of intellectual property (IP) is raised. However, an often overlooked type of IP, trade secrets, can be as, if not more, important to many business owners. As the name implies a trade secret is any information that provides a competitive edge and which derives its true economic value to a business from not being generally known by others. Trade secrets can include formulas/formulations, data, industrial processes, laboratory notebooks, technical know-how, blueprints, computer software that cannot lawfully be reverse engineered, training manuals, supplier identity, pricing/financial information, customer lists, and others.

 

Trade secrets provide no exclusivity to the owner. Unlike patents, trademarks, and copyrights, trade secrets maintain their value indefinitely when properly protected. Specific definitions of “trade secret” vary but the core requirements for a trade secret are information that is in fact a secret and derives actual or potential economic value to a business from that secrecy, and reasonable efforts made by the business to maintain that secrecy.

 

Others may discover a trade secret by fair means (independent discovery, permissible disclosure by another, reverse engineering, or other lawful means). Trade secret status provides protection only against misappropriation, i.e., improper acquisition and/or use of the information by others. Causes of action for trade secret misappropriation are available under a wide range of common law, state law, and federal law sources:

Common law tort/unfair competition

Uniform Trade Secrets Act (UTSA) of 1985

Economic Espionage Act (EEA) of 1996 (18 U.S.C. §1831)

Section 337 of the Tariff Act of 1930

Defend Trade Secrets Act (DTSA) of 2016 (18 USC §1836 et seq.)

 

Civil remedies available under the DTSA are similar to those of the UTSA. However, the DTSA limits injunctive relief available to employers. An injunction preventing an employee from entering into an employment relationship must be based on evidence of threatened misappropriation, not merely on information that the person possesses. The DTSA bars injunctive relief that would otherwise conflict with state law prohibiting restraints on the practice of a lawful profession, trade, or business. Ex parte civil seizures of property are available under DTSA when necessary to prevent the dissemination of a misappropriated trade secret (18 U.S.C. §1836(b)(2) et seq.), but only in “extraordinary circumstances” such as a defendant expected to attempt to flee the country or not otherwise subject to enforcement of a U.S. court’s order.


Many businesses are unaware of the broad scope of information, in-house procedures, etc. that can and should be protected as trade secrets and fail to take the needed steps to protect their rights. Equally, businesses should clearly establish the importance of trade secrets to new and prospective employees. In addition to including proper notice of trade secret confidentiality provisions in employment agreements, business owners should be diligent in reminding soon-to-be former employees of their duty to maintain trade secret confidentiality in exit interviews, and in requiring such employees to sign Employee Separation Agreements or Termination Statements listing business information known to the employee to be trade secrets and acknowledging the employee’s obligation to maintain the proprietary nature of the trade secrets.


A careful review by a law firm familiar with trade secret law and practice to identify a business’s trade secrets and the procedures put in place to preserve trade secret confidentiality is a great investment in the business’s future!




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